How Wage Garnishment and Tax Refund Seizure Work on Defaulted Federal Student Loans

Next in our default series, we're discussing the implications of default and the financial consequences many Americans are facing in the coming months unless they take action to resolve their delinquencies.

Once a federal student loan enters default, the government can collect the balance using powerful enforcement tools. Two of the most common are wage garnishment and tax refund offset.

Wage garnishment allows the government to require your employer to send a portion of your paycheck directly toward your loan balance. This can be up to 15 percent of your disposable income and happens without a court order.

Tax refund offsets are just as impactful. If you qualify for a tax refund or certain federal benefits, those funds can be taken and applied to your defaulted loan. Many borrowers discover this only after filing their taxes and suddenly losing money they were counting on.

The good news is that these actions can be stopped when you take steps to resolve the default. Options may include rehabilitation or entering a new repayment plan after consolidation.

Acting before garnishment begins is ideal, but even if it already started there are paths to relief. Smart Loan Aid helps borrowers understand their rights and take steps that can protect their income and tax refunds.

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